Mr. Gomez a former managing partner of the Grant Thornton accounting firm, is currently serving first half of a 12- year prison term.
In 1986, 39 year old Gomez pleaded guilty to charges, in federal courts and an Ohio state court, involving his role in the fraud at E.S.M Government securities Inc., the once obscure Fort Lauderdale Florida, firm that collapsed in 1985 and triggered one of the biggest financial scandals of the decade. An E.M.S's auditor, knowingly approved firms false financial statement for 5 years, thus allowing the massive fraud to continue.
In these days when the white collar crime is rocking Wall Street, Gomez's story is particularly telling one. In some regards, he was almost a cliché: an ambiguous young man who rose too fast and wound up in the worst sort of trouble. He says that he crossed the line into criminality without even realizing it.
When Gomez's activities came to light, many people were stunned, for he had seemed to be the model of success. He was one of the youngest people ever to be made a partner at his firm, which then was called Alexander Grant & Company. He was active in Community affairs.
But there was also a fraud, Investors initially lost some $ 320 million in the scheme Gomez helped to perpetrate and the scandal was even blamed for a brief decline in the dollar on international markets.
In a recent interview, Gomez talked of rise and fall. He says he never intended do to anything wrong. However, just days after being told of his promotion to the position of partner at Grant, two officers of E.S.M told him of crude accounting ruse that was hiding millions of dollars in losses; they had to bring Gomez on the scheme from keep it from unrevealing.
In Chicago, Burt K.Fischer, executive partner of Grant Thornton, says " I can't think of a partner who is professionally qualified not following the code of ethics of the professional body. The firm also contends that Gomez's learned of the fraud at Alexander Grant & Company in 1979..
Gomez says he decided to go along with the scheme at E.M.S that the firm's managers could make up the losses. E.M.S losses continued to mount and Gomez continued to approve phony financial statements. In late 1980, E.M.S Officers began arranging loans for Gomez, who was having personal financial problems. The loan's which weren't repaid, totaled $ 200,000
The aftershocks of the E.S.M collapse led to the 1985 ohio savings and loan crisis. The crisis when it became clear that the Cincinnati-based home state saving bank whose loans were secured by a deposit insurance fund of E.M.S The insurance fund kept as security was considered to be inadequate was likely to suffer due to severe losses of the E.S.M. Ultimately the Grant Thornton accounting firm paid $ 80 million to settle suits filed against it. Still pending are potential liabilities that approach $ 200 million
Identify the ethical issues and the areas of potential negligence by Mr.Gomez as set out in the case study?.
How did the potential negligence have an impact on the respective stake holders?